Tech Startups: Anatomy of a good idea

Starting out as a tech startup founder or an internal innovator is an exciting time. Optimism—and lots of it—is required and can be one of your greatest allies and a key ingredient for building build momentum, however, blind optimism can also be your downfall if your idea is flawed, to begin with. The best founders are skeptical optimists, they see future success but know that they need to mitigate a number of potential reasons for failure, reasons that they have yet to uncover.

The best founders do not want to spend weeks, months, and even years of their life before failing due to a fundamental flaw with their idea.

Given the high failure rate of new tech startups, founders should spend some time evaluating their idea and understanding what it takes to develop it, and then refine it into a great idea.

The purpose of this post if to help you do just that.

Let’s get started,

My definition of an “idea” encompasses the following things:

Is it people centric and easy to explain?

Explaining your idea in terms of people is fundamental yet often difficult for founders, especially technical founders. You need to be able to explain your idea to a non-technical person AND have them understand it. Try it with you Mom or your son or daughter or another non-work related acquaintance. Success here does not mean they love or even like your idea, it’s that they understand it without you having to keep explaining it to them. Try using this framework below.

Is there a big business opportunity if you are successful?

If you are successful do you have an idea of how many people will want your product? How much will they be willing to pay for it?, and how easy or hard will it be for you to find them?

Check out this awesome framework below created by Christof Janz to understand the different ways to build a $100M business.

The y-axis shows the average revenue per account (ARPA) per year. In the x-axis you can see how many customers you need, for a given ARPA, to get to $100 million in annual revenues. Both axes use a logarithmic scale.

Is the business defensible

Most startups think about first mover advantage but the smart ones think about last mover advantage: how are you going to hold on to your customers over time? As Peter Thiel outlines in his talk Competition is for losers, at Stanford in 2015. There are four different ways that you can create long-term differentiation, to be successful you need to differentiate in at least one way.

Propriety technology

Network effects

Economies of scale

Brand

In the past few years in the world of B2B SaaS, we have reached a tipping point. The landscape is severely crowded. So crowded, in fact, that In every category imaginable there are hundreds — if not thousands — of companies competing for the attention of the same audience. In this post you’ll learn why brand is so critical in B2B SaaS, alongside how you can build a brand that will stand the test of time.

Do you have a good answer on timing i.e. why now not two years ago and not two years from now?

Timing is often said to be the most critical aspect to your success or failure as a technology startup founder, if you are skeptical about this claim be sure to check out this video from Bill Gross. To mitigate against this risk you will need to get evidence that users will adopt your solution. What are the key tech & market trends that make NOW the perfect time?

Are you scratching your own itch if not, do you have access to the people with the problem you plan to solve

A lot of successful tech companies started with founders solving their own personal problem (e.g Apple, Google, Facebook, and recently Slack). If you are not solving your own problem that is ok, as long as you can access early users to help you define and refine your solution.

Your idea is in a vertical of strategic interest for your company – Internal Innovators Only

Startup founders can approach investors that have an interested, connection for a particular industry. Internal innovators only have one investor and provider of resources so it is critical that the Internal Innovators get an agreement of funding and resources to develop their business idea which may or may not involve a spin out of the business.

You will be spending years of your life working on this idea so it is good to think long-term before you jump in, and once you jump in you now know how you can evolve your idea over time.